Bonds News

U.S. bonds could help fund infrastructure bank-LaHood

* LaHood again rules out gas tax hike

* Obama proposed $4 billion infrastructure fund

* LaHood touts Build America Bonds

WASHINGTON, March 4 (Reuters) - The U.S. government could issue debt to help underpin infrastructure bank financing for priority highway, transit and other big-ticket projects, Transportation Secretary Ray LaHood said on Thursday.

LaHood again ruled out a gas tax hike to boost construction upgrades, saying the Obama administration and Congress must shift away from traditional funding mechanisms.

“There are big projects around that country that people don’t have the money for,” LaHood told a Senate appropriations subcommittee. “We need to think outside the box.”

Although there has been little congressional interest, the Obama administration is mounting a new push to establish a stand-alone infrastructure bank structured to also attract private investment.

President Barack Obama proposed $4 billion in his fiscal 2011 budget to initially capitalize the program. LaHood said bonds could also help get the money flowing from the infrastructure bank over time.

He pointed to the success of the Build America Bond program as a model for debt financing.

A popular form of taxable debt created through the 2009 economic stimulus plan, Build America Bonds were designed to finance infrastructure projects for cash-strapped states and local governments.

They offer issuers a federal rebate equal to 35 percent of interest costs. The U.S. government is now turning to subsidized taxable bonds for a variety of programs such as school construction and clean energy.

LaHood is leading the administration’s efforts to change the way transportation projects are funded with Congress wrestling with the timing and framework of long-term highway construction funding legislation.

The previous law expired in September and construction spending has been financed since through a series of short-term extensions.

The main source of financing -- the federally administered Highway Trust Fund -- is virtually out of cash. The trust fund is based on gas tax receipts, which have fallen in recent years due to the weak U.S. economy and higher fuel prices.

Some in Congress and outside experts have proposed a modest increase in the gas tax to immediately relieve stress on the trust fund. But the Obama administration, like the Bush administration before it, has flatly refused to consider that option.

LaHood suggested on Thursday that raising the gas tax, now at 18.4 cents per gallon, for the first time since the early 1990s would put too much pressure on the economy with unemployment near 10 percent.

Others have called any proposal to hike the gasoline tax a political non-starter with all members of the House of Representatives and a third of the Senate up for reelection in November.

Additional reporting by Lisa Lambert; Editing by Andrew Hay